IN THE MATTER OF ALLEGED VIOLATIONS OF THE          CAUSE NO. 1
RULES AND REGULATIONS OF THE COLORADO OIL
AND GAS CONSERVATION COMMISSION BY                     ORDER NO. 1V-201
TEXAS TEA LLC, ADAMS COUNTY, COLORADO

REPORT OF THE COMMISSION

This cause came on for hearing before the Colorado Oil and Gas Conservation Commission on October 30, 2000 at 8:30 a.m. at the Chancery Building, 1120 Lincoln Street, Suite 801, Denver Colorado after giving notice of hearing as required by law on why Reed Operating Company Inc. is not in violation of certain Commission rules.

FINDINGS

The Commission finds as follows:

1. Texas Tea LLC is an interested party in the subject matter of the above-referenced hearing

2. Due notice of the time, place and purpose of the hearing has been given in all respects as required by law.

3. The Commission has jurisdiction over the subject matter and of the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

4. On July 27, 1999, Colorado Oil and Gas Conservation Commission (“COGCC”) staff conducted a routine inspection of the Nauman #2 Well located in the SW¼ NW¼ of Section 14, Township 1 South, Range 67 West, 6th P.M. The well was determined to be incapable of production as a result of the surface production equipment being removed.

5. On July 27, 1999, COGCC staff issued a Notice of Alleged Violation (“NOAV”) to Texas Tea, LLC for the Nauman #2 Well. The NOAV cited violation of Rule 319.b.(3), failure to obtain Director approval for continuing shut-in status and Rule 326.b., failure to perform a mechanical integrity test within thirty (30) days of removing the surface production equipment from the Nauman #2 Well. Commission records indicate that the well has not produced since September 1999. The NOAV specified an abatement date of February 1, 2000.

6. Per return receipt, the NOAV was accepted by Texas Tea, LLC on July 29, 1999.

7. On December 31, 2000, Mr. Robert Reed, Production Superintendant, notified COGCC staff that the Nauman #2 Well would not be brought into compliance by the February 1, 2000 deadline due to the lack of rig availability. COGCC staff extended the compliance deadline to March 1, 2000.

8. On February 29, 2000, COGCC staff granted Mr. Parker a final deadline extension of thirty (30) days to bring the Nauman #2 Well into compliance. Mr. Parker was informed that an Administrative Order by Consent (“AOC”) would be issued if the Nauman #2 Well was not brought into compliance by April 1, 2000.

9. On April 12, 2000, COGCC staff inspected the Nauman #2 Well and found it was still in noncompliance.

10. On April 26, 2000, COGCC staff issued an AOC to Texas Tea, LLC for the Nauman #2 Well. The AOC cited violation of Rule 319.b.(3), failure to obtain Director approval for continuing shut-in status and Rule 326.b., failure to perform a mechanical integrity pressure test within thirty (30) days for a well incapable of production. The AOC proposed the assessment of a total fine amount of Two Thousand dollars ($2,000) and required the well to either pass a mechanical integrity pressure test, be properly plugged, abandoned and reclaimed or returned to production within thirty (30) days of order approval.

11. Per return receipt, the AOC was accepted on April 27, 2000.

12. On May 9, 2000, COGCC staff left a message for Mr. Parker requesting a response to the AOC issued on April 26, 2000.

13. On May 16, 2000, Mr. Parker met with COGCC staff to discuss the proposed AOC. Texas Tea, LLC was offered a revised AOC in an effort to accommodate the need for additional time to bring the well into compliance.

14. On May 31, 2000, COGCC staff informed Mr. Parker that the deadline to submit the signed AOC was June 16, 2000 to be scheduled for the COGCC July consent agenda. Mr. Parker was advised that failure to sign the AOC would result in scheduling a hearing before the Commission to pursue the issuance of an Order Finding Violation (“OFV”).

15. As of June 19, 2000, Texas Tea, LLC had not returned a signed AOC to settle the Nauman #2 Well non-compliance matter.

16. On July 6, 2000, verbal orders were issued to run a cement bond log to verify aquifer isolation. Plugging orders would be issued upon review of the cement bond log by COGCC staff.

17. On September 19, 2000, plugging orders were issued to Texas Tea, LLC and the well was plugged upon review of the cement bond logs by COGCC staff.

18. On October 27, 2000, a site inspection of the Nauman #2 Well was conducted. COGCC staff found the well had been plugged and surface reclamation had not been completed.

ORDER

NOW, THEREFORE IT IS ORDERED, that Texas Tea, LLC shall be found in violation of Rule 319.b.(3), failure to obtain Director approval for continuing shut-in status and Rule 326.b., failure to perform a mechanical integrity test within thirty (30) days of removing the surface production equipment from the Nauman #2 Well located in the SW¼ NW¼ of Section 14, Township 1 South, Range 67 West, 6th P.M.

IT IS FURTHER ORDERED, that Texas Tea, LLC shall be assessed a total fine of Four Thousand dollars ($4,000) for violation of Rules 319.b.(3) and 326.b. for the Nauman #2 Well, payable within thirty (30) days of the date this order is entered.

IT IS FURTHER ORDERED that the provisions contained in the above order shall become effective forthwith.

IT IS FURTHER ORDERED that the Commission expressly reserves its right after notice and hearing, to alter, amend or repeal any and/or all of the above orders.

ENTERED this 9th day of November, 2000, as of October 30, 2000.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Dated at Suite 801 Patricia C. Beaver, Secretary 1120 Lincoln Street Denver, Colorado 80203 November 9, 2000.

(1V#201)